US financial regulators are homing in further on the cryptocurrency market after Ethereum’s landmark ‘merge’ this week.
The so-called Merge is a major overhaul and switch over to a new operating model that will use 99.9% less energy and will reduce supply of the crypto.
On the same day, and after the Senate Banking Committee, the chairman of the influential Securities and Exchange Commission (SEC), Gary Gensler, said that cryptocurrencies and intermediaries that allow holders to “stake” their crypto may define it as a security under the Howey Test.
This is the name given to the test to see whether a transaction qualifies as an investment contract – if it does it is a security.
Gensler said that allowing holders to stake coins – as they do thanks to the Merge – means “the investing public anticipating profits based on the efforts of others.”
Gensler went on to add that intermediaries providing staking services to clients “looks very similar — with some changes of labelling — to lending.”
The SEC has previously said they didn’t see Ether as a security – so these developments do seem to be a distinct move towards bringing Ether under its regulatory remit.
A year ago, the SEC declared that Bitcoin is now to be labelled as a commodity, in much the same way as gold. But as a commodity in the U.S., Bitcoin would then fall under the oversight of another regulator, The Commodities Futures Trading Commission (CFTC).
The latest moves this week see the second largest cryptocurrency by market cap in the crosshairs of arguably the world’s most influential regulator.
It underscores, in my view, that the inevitable regulation of the cryptocurrency market is a significant step closer.
It is something I support as digital assets become increasingly part of the mainstream, global financial system.
Proportionate regulation should be championed. It would help protect investors, bolster the market, tackle criminality, and offer a potential long-term economic boost to countries that introduce and enforce it.
As regulators around the world step-up scrutiny of the crypto sector, there will be some additional volatility along the way as markets, as ever, hate uncertainty.
However, ultimately it will shore-up the market in the longer-term and we can expect prices to continue on an upward trajectory.